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SELLING A LEASED PROPERTY

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Thursday, August 16, 2018.

Whether you are just tired of the responsibility of being somebody’s landlord or you inherited a rental home, you can’t always wait until a rental is empty in order to sell. That makes it important to know your options when it comes to putting a property on the market.

What are your legal obligations to your tenants when you decide to sell?

The answer largely depends on what type of rental agreement your renter is currently under. A renter with a month-by-month agreement generally has fewer rights than a renter with a fixed lease. Here are some guidelines you can use.

1. Determine what type of lease your tenant holds

You may or may not be aware of the type of lease your tenant holds (especially if you just inherited a property). Review the lease to determine whether or not the tenant has a month-by-month contract or a fixed-term one.

2. Decide if you have the ability to clear the property

Selling an empty property is generally easier than selling one with a tenant still living in it. For your purposes, it’s better if you can end the lease and then put the property on the market.

If the tenant is on a month-to-month contract, you need to give a 30-day notice to vacate. If the tenant is on a fixed-term contract, you will have to decide whether you can wait until after the lease expires to sell. Keep in mind, it may be possible to terminate the lease early if your property is occupied by a “problem” tenant. You can review the terms of the lease for violations and initiate eviction proceedings — although that does put you through more effort and expense than simply waiting out the lease.

3. Consider an offer to the resident of cash to buy out their lease

If you don’t have any way to terminate a lease early, you may be able to broker a deal with your tenant. Consider offering two months’ rent plus moving costs — enough for the tenant to start over somewhere else without significant expense. That may be cheaper (and quicker) than an eviction.

If all else fails, you can still sell the rental contract with the property — although that does mean finding a buyer who is willing to assume the lease.

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WHAT LANDLORDS SHOULD KNOW ABOUT BANKRUPT COMMERCIAL TENANTS

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Thursday, August 2, 2018.

For most commercial landlords, a tenant’s bankruptcy hardly comes as a huge surprise. More than likely, the rent payments have been getting later and later — or they’ve gone missing a few times. It isn’t uncommon for tenants in financial trouble to stop communicating — usually because they’re trying to figure a way out of the situation or are unsure of their next step.

So, what happens when you finally get the notice that a commercial tenant has filed for bankruptcy protection?

When the automatic stay is in place

An automatic stay goes into effect as soon as the bankruptcy is filed. You can’t collect back rent, enforce a judgment or put a lien on their business equipment during that time. You also cannot immediately apply the security deposit to the unpaid rent without the bankruptcy trustee’s permission.

When you have already terminated the lease

You can be subject to sanctions and fines if you violate the terms of the automatic stay, but that doesn’t necessarily mean you are without rights. If you terminated the lease due to nonpayment prior to the bankruptcy, you can ask the trustee in the case to lift the stay so you can proceed with an eviction.

When the tenant has skipped out

If the property was vacated before the lease was terminated, you can usually gain access to the property quickly. Be careful, however, about how you treat anything the tenant left behind. Material goods, equipment and the like may all be subject to liens and part of the bankruptcy estate. It’s always necessary to get the trustee’s permission to dispose of anything — even something that has no obvious value.

When the tenant wants to continue

Your tenant can usually continue the remainder of the lease only if he or she can satisfy the unpaid rent and provide you with a reasonable assurance that you’ll continue to be paid. You may be able to require an additional security deposit or a guarantee of credit from the tenant’s backers as part of that reasonable assurance.

Because bankruptcies are so complex, it’s wisest to seek legal advice regarding a commercial tenant who goes bankrupt. There are often remedies available to help your situation — but it takes some experience to know when and how to press your case.

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INVESTING IN AN EARTHQUAKE ZONE MEANS MONITORING INNOVATIONS

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Thursday, July 19, 2018.

California is trying to build up rather than out. It makes sense to make use of tall buildings in most California cities. It’s the only way to stop moving the suburbs out farther and making commutes longer.

However, is it a smart idea? Is it even safe, given the fact that future earthquakes are not just a possibility — but a certainty in some areas? If they aren’t already, investors need to be conscious of their risks.

Los Angeles and San Francisco offer some prime real estate investment opportunities. Both are inside Class Four seismic zones, where earthquake preparation is necessary. Historically, the cities have limited the height of their buildings. However, San Francisco recently allowed a building to go about 100 feet taller than is normally allowed due to its exceptional “seismic performance.”

Structural engineers who have studied the way that buildings perform in earthquakes have come up with some amazing innovations. In the case of San Francisco’s tallest skyscraper, computer modeling was used to help design the building and make sure that it met all required codes. It also helped determine the way the building would react to various seismic events in the region.

Engineers also drove the skyscraper’s foundation 200 feet underground, into the bedrock below. Its walls are also made with a type of specially-reinforced concrete and steel frames. The floors are also designed using a unique support system. These are the type of innovations investors should see before they decide to put their money into a California skyscraper.

So, are skyscrapers simply a bad risk in an earthquake zone? The experts say that the technology in use actually makes the newest skyscrapers — which are also the tallest — among the safest buildings in the city during an earthquake. Many older buildings were retrofitted to meet earthquake-readiness guidelines after a major quake hit back in 1994. New buildings are designed with the possibility in mind from the very start.

As always, it’s important to perform due diligence in all commercial real estate purchases before you decide to invest. That means taking into consideration the unique natural characteristics of the region as well.

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WHAT CLAUSES SHOULD YOU HAVE IN YOUR COMMERCIAL LEASE?

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Friday, June 29, 2018.

One of the most valuable clauses you can get in a commercial lease is a “go-dark” clause. However, many commercial tenants aren’t even familiar with the term.

If you’re trying to figure out a good way to protect yourself in case the iproperty turns out to be a money pit, this is what you should know.

What’s a go-dark clause?

Most commercial leases require you to operate your business continuously for the duration of the lease. If you’re in a unit with multiple stores, like a retail mall, that means adhering to the mall’s hours of operations — even if it isn’t profitable for you. It also puts you in default and can make you subject to penalties if you have to close down entirely.

A go-dark clause gives you the right to shut down your store without penalties as long as you pay your rent.

What else can they do?

In conjunction with a co-tenancy clause, you can also gain the right to close your store down or take a significant reduction in your rental obligation if one of the anchor stores in the mall goes out of business.

For anybody who has witnessed what can happen when the anchor store in a mall suddenly fails, this clause is an obvious life saver.

What other options are there?

You can also negotiate a “right to recapture” with the landlord. This will give the landlord the ability to take the space back if you decide you can’t keep up with the hours. This is often seen as a win-win for both parties. However, it can become a problem for tenants if they need to close for a short period. An overeager landlord can leap onto an opportunity like that to recapture the space when there’s another tenant waiting.

It’s important to consider the possibility that your store isn’t going to be profitable — even if it isn’t pleasant to consider. That’s the best way to manage your losses before they happen.

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WHAT CAN YOU DO ABOUT THAT EMPTY COMMERCIAL SPACE YOU OWN?

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Thursday, June 21, 2018.

An empty commercial space is a big problem for the owner. Aside from the obvious problems (losing money, having to pay a mortgage or overhead on an unused space), a space that stays empty too long can attract negative attention that ultimately makes it harder to rent again.

To keep that empty space from becoming a problem while you look for the right tenant, consider allowing a few short-term leases instead. It’s time to think about renting to a pop-up business.

What are they? You’ve seen them, even if you didn’t consciously realize that’s what you were seeing. Every year around tax time there’s a flood of temporary offices by companies like H&R Block or Jackson-Hewitt. Similarly, around the holidays, you’ll see pop-ups by Halloween USA and numerous Christmas supply stores and novelty gift shops.

However, these aren’t your only choices. The odds are good that right in your own community, right now, someone is looking for a short-term lease to stage an art sale by independent artists, introduce people to the wonderful world of bonsai trees, or maybe showcase their inventory of Celtic goods for the summer’s Irish Festival.

Even some local retailers and wholesale shops will look for temporary space to get rid of their excess merchandise when they’re overloaded. Some big-name companies, like Apple, may need space to handle the influx of customers when a new product is released simply because their regular stores can’t handle that much traffic at once. A lot of entrepreneurs with small budgets but big ideas can also use a short-term lease to introduce their latest product to the market. This gives them a chance to test the waters in a market without making a long-term commitment.

While rents for short-term leases tend to be lower, you can offset the lower rent by insisting that the pop-ups make do with the space “as-is” and not allowing any major modifications the way you would with a long-term lease. Plus, the foot traffic from an engaging pop-up helps make your property seem more attractive to potential long-term tenants and can keep the whole area from seeming economically depressed.

Since leases used in long-term rental agreements are so different, make sure that you get some solid advice on drafting a good short-term lease that won’t hamper your ability to find another tenant down the line.

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HOW DO YOU NEGOTIATE A COMMERCIAL LEASE FROM A POSITION OF POWER?

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Tuesday, May 29, 2018.

If you’re about to enter your first commercial lease as a renter, you have every reason to be nervous. The law automatically presumes that you’re savvier than the average residential renter — so you’re on your own when it comes to negotiating a fair deal from the landlord.

How do you find a strong, powerful position from which to negotiate?

1. Know your options.

If you don’t look around and consider all your options, you may jump at a bad deal simply because you think that you have to have it.

Worse, the landlord may sense that you’re anxious and offer you a deal that definitely isn’t a bargain.

It’s okay to really want a particular building for your business. But temper your enthusiasm with the sure knowledge that you have other options if this deal falls through — and be willing to use them. That’s the only way to negotiate from a position of strength, not weakness.

Spend some time with your broker looking at all the available options, including building (if necessary), so that you don’t go into any negotiations giving out unconscious signals that you just have to have a particular piece of property.

2. Talk to other tenants.

Are you looking at an office building with multiple tenants? If not, does your landlord have other properties that he or she rents to other companies?

You need to visit some of those tenants and ask questions. How is the landlord about keeping up the property? What about when it comes time to renew the terms of a lease? What other information can they offer you?

The odds are good that you’ll get some honest reviews about what the landlord is like on a day-to-day basis. That sort of information can help you decide if it is really a wise decision to get into a contract with a particular landlord or not. Someone that has a troubled relationship with several other tenants is likely to have the same relationship with you.

Obviously, it’s always important to look carefully at everything in any lease you’re offered — but these two steps can help you exude more confidence when you’re at the negotiation table.

Source: LeaseRef, “6 Tips to Negotiating a Killer Commercial Lease,” accessed May 29, 2018

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HOW TO NEGOTIATE A COMMERCIAL LEASE THAT FAVORS THE TENANT

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Tuesday, May 15, 2018.

If you’re about to sign your first commercial lease as a tenant, there’s one big piece of advice you need to follow.

Negotiate.

Unlike residential leases, just about everything is up for negotiation in a commercial lease. How much power you really have is directly related to how badly the landlord wants a tenant (or wants you as a tenant). Most of the time, however, you can subtly shift negotiations in your favor simply by following these tips:

Research the market

You’ll have a much harder time negotiating from a position of strength if you don’t know what the commercial rents are like in your market. Talk to your network of business associates about what to expect. That’s the only way to know what’s fair and counter a bad offer with authority.

Don’t accept the initial offer

That first contract may be “standard” from the landlord’s point of view, but you can bet it favors only the landlord. Experienced business professionals know not to sign the “standard” contract. Take it with you for a careful review, whether you’re doing it alone or working with a broker or attorney.

Know your deal-breakers

Go into negotiations with a clear set of priorities. Know what you absolutely have to have and what you’re willing to give up. That way you can give up some ground that doesn’t really matter to you in order to gain what does. That can be an important psychological play when you’re negotiating because everyone wants to feel like they won some sort of concessions.

Be willing to start over

Ultimately, being ready to forget the whole deal and go somewhere else is important — both for your security and from a standpoint as a negotiator. The more you want a deal, the easier it is for the other party to take control.

As always, communicate clearly and concisely with your potential landlord — but insist on getting everything in writing. That’s the only way to really ensure that you know what you’re getting.

Source: REoptimizer, “10 Commercial Leasing Tips for Tenants,” Don Catalano, accessed May 15, 2018

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LEASES FOR MALL KIOSKS AND POP-UPS

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Thursday, April 26, 2018.

There are two times of the year that mall kiosks and pop-ups seem to thrive: right before the holidays in December and in the middle of summer. A lot of people hit the malls to relax while they beat the heat.

A kiosk or pop-up can be very profitable for many small businesses, especially if they’re trying to make themselves known and reach out to new customers. However, there are some things about the temporary commercial leases that owners need to keep in mind — so that the whole thing doesn’t backfire on them and end up costing money.

Everything is negotiable

Unlike residential leases, commercial landlords know that they are going to have to bargain with prospective tenants. The lease they offer will be written to primarily benefit the landlord and is his or her “ideal” lease. It isn’t your ideal lease, however.

You absolutely have the power to negotiate a better deal. Malls need all the extra help they can get bringing people through the doors. Your kiosk or pop-up helps drive up interest in the mall in general. If you fail to negotiate a better deal for yourself, you’re losing money.

Stores may not want you there

Stores that inhabit the mall all year aren’t necessarily overjoyed to see a kiosk or pop-up store just outside their doors. They may feel that you’re driving potential customers away. If your kiosk or pop-up is particularly interesting, your customers might also end up blocking foot traffic outside a store.

Before you sign a lease with the mall’s owner, find out whether or not stores have a right to force you to move. If so, that could be a problem — your temporary store won’t do much business if it gets bounced from spot to spot and eventually has to set up shop in a half-empty corridor.

Never assume utilities and storage are part of a deal

Always remember that if a lease doesn’t specifically address an issue, that’s not likely to work in your favor. For example, if you need to use some of the mall’s storage space for your excess inventory, you could end up frustrated if the lease doesn’t directly permit that. Whatever you want, get it in writing.

Kiosk and pop-up leases are very similar to other commercial leases — which means you need to be just as cautious as always.

Source: FindLaw, “Negotiating a Lease for Commercial Real Estate,” accessed April 26, 2018

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HOW TO SAVE MONEY ON A COMMERCIAL LEASE

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Wednesday, April 18, 2018.

A commercial property lease can be the single biggest expense a business has every month — which directly affects a company’s bottom line. For many budding entrepreneurs, the cost of the lease will spiral out of control simply because they don’t know how to look for ways to cut costs.

Here are some areas of any commercial lease that bear reviewing:

Property taxes

Make sure that you’re paying, at most, only your share of the total taxes and that your obligation doesn’t extend beyond the lease. That can happen, for example, if the landlord has the taxes on an installment plan and the next installment becomes due at the end of the lease. You could otherwise be stuck covering taxes for years you aren’t even in residence.

Disability requirements

Compliance demands and consumer lawsuits regarding the Americans with Disabilities Act (ADA) has become a hot-button issue for many commercial tenants. If your lease doesn’t put the obligation for renovations to ensure compliance on the landlord, you could be hit with fines and forced to make the changes yourself.

Maintenance and repairs

Pay a lot of attention to clauses in your lease regarding this issue. You don’t want to assume responsibility for all maintenance issues, including plumbing, electrical and structural problems. Make sure that your obligation is limited to cosmetic or surface conditions only.

Operating expenses

Also known as common area expenses or maintenance, this is the No. 1 thing that can drive up a tenant’s monthly costs unnecessarily. Review exactly what your landlord provides and determine exactly how much of the building’s common areas represent your share. You can negotiate for a number of standard exclusions — but only if you ask for them! No landlord is going to voluntarily reduce his or her profits unless prompted.

The key to a successful commercial lease is to remember that — unlike residential leases — virtually everything is negotiable. Just make sure you do the negotiations before you sign!

Source: The Space Place, ““Are You Losing Money?” 10 Common Pitfalls for Commercial Tenants to Avoid,” accessed April 12, 2018

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TIPS FOR NEGOTIATING A CELL TOWER LEASE

On behalf of Michael Brooks of Law Offices of Michael A. Brooks posted in commercial real estate on Friday, March 30, 2018.

Cellular companies are always looking for new places to build the towers they need to transmit customer data. If you’ve been approached by one about leasing a spot on your land, you need to make sure that you are getting a fair deal.

While any bit of cash for land you aren’t currently using is probably appealing, you don’t want to practically give it away. Here are a few tips that can help you negotiate:

1. Remember that the company representative, no matter how nice he or she may seem, is being paid to get the company the best possible deal. In fact, there’s probably a bonus for the agent if the cost of the lease is low enough. He or she is not going to volunteer any information that would increase your bargaining power. That’s one of the reasons that people often look for advice from a commercial real estate attorney who is familiar with cellular tower leases.

2. The actual value of the lease increases according to how many different carriers want to use the tower. That means that if you have a prime spot that could benefit a number of cellular companies, a tower on your property has actual investment value. That should be considered when setting the cost of the lease.

3. You don’t want to agree to a rent-per-square-foot deal. The actual size of the cellphone tower can be pretty small. Agreeing to a lease based on square footage of land used is a sure way to undercut your own profits. The value of the tower is the same regardless of its actual land usage.

4. Negotiate a regular increase in the lease rate for inflation. You can generally come to an agreement about how often the rent will adjust for inflation and what marker will be used to set the adjustment. A cell tower is likely to stay put for years. The rent you charge today won’t look so handsome in a decade once inflation kicks in.

Keep in mind that information is power when you’re negotiating. Good research and the appropriate consultations will keep you from finding out in a few years that you were shortchanged.

Source: Technogog, “4 Facts to Know About Cell Tower Leases,” Kristofer Brozio, accessed March 30, 2018

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